NORTH AMERICA: Canadian Pacific Railway formally completed its US$31bn acquisition of Kansas City Southern on December 14, in preparation for the planned merger of the two railways, and has put the smaller company into a trust pending regulatory approval of the merger application.
Closing of the purchase took place two business days after the sale was agreed by KCS stockholders at a special meeting on December 10. CP shareholders had approved the deal two days before that. Both sets of shareholders voted overwhelmingly in favour of the merger proposals.
Under the terms agreed by the two boards on September 15, KCS stockholders receive 2·884 CP common shares and US$90 in cash for each share of KCS common stock and US$37·50 in cash for each share of KCS preferred stock.
To facilitate the purchase, CP issued 262 597 106 new common shares to cover the share consideration element. This increased the railway’s total share capital to approximately 721·4 million weighted average diluted shares. CP has also raised new debt of C$2·2bn and US$6·7bn to fund the cash consideration. These transactions were completed by December 2, and CP said it expected to incur approximately C$21m million in interest payments during the current quarter as a result.
Following the closing of the acquisition, CP has placed its shares in KCS into a voting trust. This will ensure that the smaller railway can continue to operate independently until the US Surface Transportation Board completes its regulatory review of the two railways’ merger application. A final decision is expected in the fourth quarter of 2022.
Former KCS President & CEO Dave Starling has been appointed as Voting Trustee, and will oversee the management of the railway by its current executive team. During the period that KCS is held in trust, CP will account for its ownership under the equity accounting method, reporting KCS earnings as a single line in its consolidated income statements.
Subject to STB approval, the two railways would then be formally merged to create Canadian Pacific Kansas City Ltd, which the proponents describe as ‘the only single-line railroad linking the United States, Mexico and Canada’. Full integration is expected to take around three years following final approval, unlocking the anticipated benefits from the business combination.
‘Today is a historic day for our two iconic companies’, said CP President & CEO Keith Creel. ‘CPKC will become the backbone connecting our customers to new markets, enhancing competition in the US rail network, and driving economic growth across North America while delivering significant environmental benefits. We are excited to reach this milestone on the path toward creating this unique truly North American railroad.’
‘As a board and management team, we are proud of the countless contributions and achievements of all those who work for Kansas City Southern’, added KCS President & CEO Patrick Ottensmeyer. ‘We are excited for the possibilities that will open to us through this combination with CP and we look forward to our next chapter.’
